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<\/p>\nMost of us who are tied down to monthly mortgage payments can\u2019t wait until the day it\u2019s done and dusted\u2026 but while you may be eager to pay it off early if possible, you might also be starting to think more about your pension fund.<\/p>\n\n
If you\u2019ve come into an extra few bobs, is it more beneficial to pay into your pension fund or make early payments on your mortgage?<\/i><\/p>\nWhen you can afford to put something extra away\u2026 you should!<\/b><\/h2>\n
Maybe you\u2019ve started a new job with a higher salary or you\u2019ve come into a good bit of money in the form of a lump sum\u2026 Whether you get to enjoy your mortgage being paid off in full two or three years earlier or you have a few extra thousand to spend on enjoying your retirement, it\u2019s always a good idea to put a little something away to make life easier down the line.<\/p>\n
There is a lot of debate as to which option will be more beneficial to you in the long run. Some believe it\u2019s better to pay off your mortgage early so that you can save thousands on interest and have some financial freedom much earlier. Some believe that paying into your pension is the better option because you can make a lot of interest if you have a decent savings account or pension fund as well as the associated tax benefits.<\/p>\n
There are far too many variables in people\u2019s personal circumstances to give a one-size-fits-all answer. So instead of offering one, here are the questions you should be asking yourself when trying to make a decision.<\/p>\n
The more expensive a debt, the more it will cost you to pay off over time. A lot of credit cards, store cards and personal loans charge a high rate of interest, therefore you should pay it off as soon as possible to reduce the amount of interest that you pay.<\/p>\n
If you have an unsecured loan with an interest rate that\u2019s significantly higher than your mortgage, it\u2019s also a good idea to take care of that before you go take care of your mortgage or pension payments.<\/p>\n
Always pay off the more expensive debt before thinking about overpaying on your mortgage and really you should always have a rainy day fund of about 3-6 months living costs.<\/p>\n
When you make pension contributions, you\u2019re taking advantage of a tax-efficient means of saving because of the tax reliefs associated with many pension funds. This is because technically if you\u2019re paying into a pension scheme, you\u2019re reducing your taxable income. If you\u2019re on a company scheme, your employer might even make contributions to your pension too.<\/p>\n
If you don\u2019t have a pension already and you have a few bob spare at the end of each month or a hefty sum of money, you should really consider paying into a pension fund. When it comes to saving for your pension, the earlier the better!\u00a0Yes,\u00a0it\u2019s hard to part with money that you can\u2019t make use of for a long time but you\u2019ll be glad of it in the long run.<\/p>\n
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If you\u2019re already paying into a pension scheme, it might be a better call to pop your money into a savings account. That is if you can get one that pays a higher rate of interest than the rate you\u2019re being charged on your mortgage.<\/p>\n
If you\u2019d like to compare then you should figure out what the rate amounts to after tax has been deducted from your savings. Oh and sometimes savings accounts that offer tax-free returns so that\u2019s certainly worth looking into.<\/p>\n
In Ireland, we need to factor in something called DIRT. What is DIRT exactly? Well, first of all, it stands for Deposit Interest Retention Tax. DIRT is a tax deducted from the interest paid on all deposit accounts that are held by individuals who are Irish residents. The current rate of DIRT for 2019 is 35% of your total interest. You must declare DIRT on your tax return on either a Form 11 (self-assessed) or Form 12 (PAYE) depending on if you\u2019re filing under the PAYE or Self-Assessed system. If you want help filing DIRT, why not\u00a0contact us today<\/a>\u00a0and we\u2019ll walk you through the entire process.<\/p>\n But I don't want to do my own taxes...<\/strong><\/p>\r\n Ok then, click here instead!<\/a><\/p>\n This is an important one to consider. Some mortgage deals will result in an extra charge if you wish to pay off early or make payments that exceed the agreed monthly limit. Generally, mortgage lenders will allow you to pay up to 10% extra a year with no penalties.<\/p>\n If you have a flexible or offset mortgage, you may also be able to overpay and then get the money back if needed without any charge.<\/p>\n Overpaying your mortgage means you can pay it off much sooner, depending on how much you can afford to overpay you could potentially knock years off your payments. Now doesn\u2019t that sound nice?<\/p>\n Planning for your retirement means accumulating assets\u00a0and\u00a0<\/i>significantly reducing your spending. You\u2019ll have less money coming in when you\u2019re retired, so completely eliminating your monthly mortgage can greatly increase the amount of money you have to spend on things like travel, fun activities and any medical expenses you may (or definitely will) have. When it comes down to it, you\u2019re better off not having a mortgage to pay during your retirement if possible.<\/p>\n But most importantly, paying off your mortgage early means you get to pocket the money instead of paying it all to the bank.<\/p>\n Make sure the timing is right for you. If you are charged daily interest, make the overpayment sooner rather than later. If it\u2019s charged annually, you should time your overpayment to make sure that it counts towards the calculation of interest for the entire year.<\/p>\n There is a way that you can have the best of both worlds. If you\u2019re not already renting out a room in your home, you could consider paying off your mortgage early and making some of that money back with the Rent-a-Room scheme.<\/p>\n With the Rent-a-Room scheme, you will be entitled to earn up to \u20ac14,000 a year tax-free. If you live in an area where housing is in demand, you will have your choice of tenants and you can ask for a fair price for the room. If you live in the sticks, it might not be as bountiful but may still be a good way of topping up your mortgage.<\/p>\n Renting out a room or living space in your home is a great way to earn some extra dosh to put into your pension fund. If you\u2019d like to know more about the Rent-a-Room scheme, check out our article \u2018Make \u20ac14,000 a Year Tax-Free With the Rent-a-Room Scheme<\/a>\u2019<\/p>\nWill I be charged for overpaying on my mortgage?<\/b><\/h2>\n
What are some of the benefits of overpaying my mortgage?<\/b><\/h2>\n
If you do decide to overpay your mortgage\u2026<\/b><\/h3>\n
Are you a landlord or could you become one?<\/b><\/h2>\n